Change from ‘protection to connection’ driving values

NASHVILLE—Connected services are changing the industry and creating new business opportunities but are also posing some challenges, such as enticing telecom and cableco players into the market, a panel of industry experts said at the Electronic Security Expo here last week.

“Over the last two years, the game has changed. Home security has become more about home automation. The emphasis is shifting from protection to connection,” said Amy Kothari, president and CEO of Alarm Capital Alliance and a speaker on an ESX panel discussion titled “Trends in Mergers, Acquisitions and Valuation.”

Kothari said, “With these changes we’re seeing, buyers and sellers are seeing new sources of revenue that are driving value, driving incremental RMR from existing customers and creating new business opportunities.”

But she cautioned that “along with the new sources of revenues there are associated costs that have to be considered,” such as hardware, software, technology platforms, IP cellular, and 2G, 3G and 4G issues. “At times it can all be very confusing, but as a result the marketplace is more active than ever,” Kothari said.

She added that even though the “composition of RMR, the average RMR and associated costs may all be evolving,” the “key metrics” for business success remain the same: RMR, well-managed costs and low attrition.

“If you can get those three things right and pay attention to the latest technology, you are set up for success in a market that is truly ready to support success,” Kothari said.

The other panelists—Joe Nuccio, president and CEO of ASG Security; Mel Mahler, chairman and CEO of ADS Security; and Bill Polk, managing director of Capital One Financial, security, defense, and technology finance—agreed.

Nuccio said, “Technology is changing so much it gives everybody an opportunity to build some really nice-sized, high-quality companies. But the one thing that doesn't change is service … and I think companies that continue to focus on their customers and provide service are going to have a lot of value.”

He and others cautioned against charging too much for additional services, because customers could be lured away by a competitor with lower prices. Nuccio said customers will remain loyal “if you’re pricing it right and providing the services.”

George De Marco, ESX chairman and panel moderator, asked the group about the impact of telecoms and cablecos on the industry.

Polk said, “What is going to be the long-term impact of the cable companies on this business? They have a whole different set of priorities and objectives and they could bring the price down. … We don't know yet, so we’re watching it carefully.”

Mahler warned against judging the telecoms and cablecos based on their previous failed attempts to succeed in the industry. “If anybody believes they’re going to be the same [as when they tried to offer security in the 1990s] and not successful, they’re wrong,” he said. “I think they have a different approach, they’re smarter.”

However, he said, “the cablecos in particular” have “a couple of Achilles’ heels.”

One vulnerability, Mahler said, is “we have a policy that we don’t sell to renters, but they sell to anybody, so there’s a cancellation liability.” Also, he said, if the cablecos bundle security with customers’ cable, “people switch cable companies all the time. What are they going to do with security issues? That will be a tough thing for them.”

The panelists said private equity is very interested in the industry right now because it demonstrated it could survive the recession. Also, Kothari said, “all the new technology and new services are showing an industry that survives and is now on the cutting edge and has a lot of growth opportunity that wasn’t there a couple years ago.”